In his testimony beofore the U.S. Senate testimony today, the head of the Association for Investment Management and Research will call on Wall Street firms to address conflict of interest problems by compensating their research analysts based on the performance of their stock recommendations.

“We strongly believe that firms can and must reward analysts first and foremost for the quality of their analysis and on explicit quantitative measures of the success of their recommendations,” Thomas Bowman, AIMR’s president and CEO said.

Bowman is scheduled to speak today at a U.S. Senate Banking, Housing and Urban Affairs Committee hearing on accounting and investor protection issues raised by Enron and other public companies.

Bowman will also call for an overhaul of the securities rating systems that Wall Street firms now use. These systems, which are different from firm to firm, include a wide range of terms, from “strong buy,” “intermediate term attractive” and “long-term accumulate” to “hold,” (usually interpreted as a euphemism for “sell”), “neutral” and “reduce.”

“Although firms may believe their proprietary rating systems are a competitive advantage, the market is better served when ratings are concise, clear and easily understood by the average investor and provide reasonable comparability across firms,” Bowman said.

He will recommend that all ratings not only have a bottom-line, “buy-hold-sell” recommendation, but also two other factors. The first factor is a risk element that would measure expected price volatility or other risks. The second factor is a time horizon that would give, for instance, an estimated length of time before the stock price would reach its price target.

Bowman also will tell the Senate committee that Wall Street analysts and their firms should be required to update or reconfirm their recommendations on a timely and regular basis, and more frequently in periods of high market volatility. They should be required to issue a “final” report when coverage is being discontinued and provide a reason for discontinuance.